RIM sees no slowdown as analyst questions 10M iPhone target

Apple's goal of selling 10 million iPhones in 2008 is being tossed under the microscope just as Blackberry maker Research in Motion (RIM) announced that its smart phone business has remained uncharacteristically strong through the start of the new year.

Speaking to clients in a research report on Friday, Bernstein Research analyst Toni Sacconaghi called Apple's self-imposed 10 million iPhone sales target "optimistic," especially if the company insists on maintaining carrier revenue share agreements without a significant price cut or new model introductions.

The analyst noted that iPhone sales averaged 180,000 units a week in the fourth calendar quarter of 2007, which stands as Apple's busiest period of the year. As such, he estimates to company will sell just 7.9 million units during the course of the year, given no change to its strategy.

"While we believe the iPhone has the potential to drive material earnings growth for Apple, recent data points suggest the business is facing two significant challenges: (1) overall demand for the handset appears to be falling short of expectations; and (2) the incidence of 'unlocking' has been much higher than expected," Sacconaghi wrote.

The Bernstein analyst was referring to recent reports that Apple has scaled back first calendar quarter iPhone production, and that unlocked versions of the handset may comprise 25 percent or more of the company's total shipments.

Should Apple hit its 10 million iPhone sales target, the number of unlocked devices would cause the company to forego between $1.1 billion and $1.3 billion in deferred subscriber revenues over two years, he added.

Meanwhile, RIM said Monday that it, unlike Apple, has not witnessed a decrease in subscriber growth since the start of the new year, as it had originally projected. Instead, the Blackberry maker now expects fourth-quarter subscriber additions to be approximately 15 - 20 percent higher than the 1.82 million it forecasted in December.

"BlackBerry smartphones proved to be a big hit throughout the holiday selling season and were pleased to see RIMMs business momentum continuing in the new year," said co-chief executive Jim Balsillie. "The seasonal slowdown in net subscriber account additions that we expected in the new year did not occur and our focused execution with partners has continued to produce strong results within both enterprise and consumer segments."

RIM's ability to maintain its subscriber momentum has been attributed by some to its lower-cost offerings, such as $99 Blackberry Pearl, for which Apple offers no competitive option. Following the introduction of a $499 16GB iPhone earlier this month, BMO Capital Markets analyst Keith Bachman suggested that the Cupertino-based company may be going in the wrong direction when it comes to pricing.

"We believe Apple generates more than $200 in gross profit over the life of the phone, compared with approximately $100 for the actual sale of the phone," he wrote in a research report. "Consequently, we believe Apple would be much better off with lower-priced phones, with less profits at the time of sale, and significantly higher revenues/profits over the approximately two-year life of the phone."

Still, it's believed that Apple will aim to maintain its current course and the higher average selling price of its iPhone handsets later this spring with the introduction of a 3G model that should also help spur new demand. Reports have suggested that a target introduction is again planned for the June timeframe.

"We believe Apple generates more than $200 in gross profit over the life of the phone, compared with approximately $100 for the actual sale of the phone," he wrote in a research report. "Consequently, we believe Apple would be much better off with lower-priced phones, with less profits at the time of sale, and significantly higher revenues/profits over the approximately two-year life of the phone."

Well that would be great if people weren't unlocking the damn things at an astonishing rate. Does this guy not know how many are bought and unlocked or has he chosen to ignore this fact?

How would Apple make any money on unlocked phones on carriers that don't share revenue with them if they lowered the price much more?

" if the company insists on maintaining carrier revenue share agreements without a significant price cut or new model introductions."

So... this analyst thinks there is ANY chance at ALL of there being NO new iPhone models or price changes all year?

"the number of unlocked devices would cause the company to forego between $1.1 billion and $1.3 billion in deferred subscriber revenues"

As the Macalope points out, that's not true: Apple's not "foregoing" that revenue-sharing, because there would BE no (or at least less) revenue-sharing agreements without the exclusivity. It's like saying "AT&T pays Apple to be the exclusive carrier. Apple is stupid not to make ALL the carriers be exclusive (?) so they can get ALL of them to pay Apple the same amount AT&T does." Obviously, they can't all be exclusive, and would not be willing to share as much without exclusivity. Apple's not "foregoing" that revenue-sharing... but they ARE making money on all those unlocked phones. Making--not losing.

Why they care about unlocking device ???? the majority of the unlocking iPhone is for other country were no carrier offer the iphone. So, apple do not loss any money from carrier, the iPhone is not available in those country (Canada, China etc..), they just sell more iPhone.

Quite honestly, I prefer the BlackBerry to the iPhone for business, and so does my son, who works for AT&T, and sells to enterprise. I like buttons versus touch when it comes to business. Apple will eventually get to where it is going with the iPhone, but Apple is not there yet. BlackBerry's have great speakerphones, and other basic features that work well such as GPS.

I always thought the 10mil iPhone goal was the 18 months from introduction until the end of CY08? Everytime I read an article about a competitor saying Apple isn't going to make their goal they make it sound like the 10mil goal was just for '08? Am I wrong?

Well that would be great if people weren't unlocking the damn things at an astonishing rate. Does this guy not know how many are bought and unlocked or has he chosen to ignore this fact?

How would Apple make any money on unlocked phones on carriers that don't share revenue with them if they lowered the price much more?

This gent is obviously not too bright...

- People do not buy unlocked phones (or buy to unlock) because the phone is too expensive - just the opposite: they often pay a lot more (unlocked 16GB models sell for 900 USD average on eBay Germany and there are hundreds of them being sold daily). They buy unlocked phones because they do not want the exclusive contracts, have no official iPhone in the country or do not want to deal with roaming charges when travelling. Apple should drop the "exlusive carrier" crap, and make the money itself iso dubious people on eBay making 100% ROI for spending 10 minutes unlocking the device and reselling it. Enormous amounts of people would buy the unlocked phone for a fair price - and, just like Touch users, willingly pay for substantial software upgrades (as a compensation for the revenue sharing with carriers).
- Apple has been far too slow in introducing the phone in more countries. Even if the competition is still far behind. The iPhone is no longer a new device - it is over 12 months old technology. The longer they wait, the less people will be willing to sign up for 24 months contracts.
- Apple reduced production in the new year? Big news and big surprise! It is a consumer device - the RIM is not. Private people buy for christmas, businesses buy out of the fresh annual budget. Analysts do not understand complex issues like this.

I always thought the 10mil iPhone goal was the 18 months from introduction until the end of CY08? Everytime I read an article about a competitor saying Apple isn't going to make their goal they make it sound like the 10mil goal was just for '08? Am I wrong?

This is absolutely correct. People just have poor listening/reading skills.

Well golly, the iPhone has not even been out a year yet - if you think Apple is not going to borrow from it's iPod playbook then your an idiot.

All I can add to this is if anyone doubts the iPhone success, they need to re-consider who's running this show. The ship may or may not be on course, but I don't think too many people feel uneasy with Steve's hand on the tiller ;-)